Land Law: Constructive Trusts

Constructive Trusts

What are Constructive Trusts?

Constructive trusts are a form of implied trust. They are exempt from the formality requirements needed to create a new interest in land. They are also capable of constituting overriding interests that can bind third parties. In different jurisdictions, there are two forms of constructive trust:

  • Institutional: the trust is created by law from the date the legal requirements are established. While a claimant will normally go to court to prove they have a trust, the court does not create the trust – they merely declare that it already exists.
  • Remedial: the court creates the trust, and has discretion as to whether it has retrospective effect.

Constructive trusts in English law are institutional only: Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669.

Types of Constructive Trust

There are many kinds of constructive trusts. The main ones include:

  1. ‘Common intention’ constructive trusts;
  2. Rochefoucauld v Boustead trusts;
  3. Pallant v Morgan trusts;
  4. Trusts required to fulfil the maxim ‘equity sees done what ought to be done’. These include trusts for land subject to a specifically enforceable sale contract (Lysaght v Edwards (1876) LR 2 Ch D 499) and trusts of wrongful fiduciary gains (FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45);
  5. Trusts granted as a remedy after a successful proprietary estoppel claim; and
  6. A ‘trust de son tort’: a non-trustee who takes it on themselves to meddle with a trust, or who acts as if they were a trustee, will be held liable as a constructive trustee.

Common Intention Constructive Trusts

Establishing the Trust

Where parties acquire property at law in joint names but don’t specify who owns the equitable title, the equitable title is rebuttably presumed to be a joint tenancy: Stack v Dowden [2007] UKHL 432. This means that each party holds the legal title on constructive trust for the others. Problems arise when only one party owns the legal title – a common intention constructive trust must be separately established.

To establish a common intention constructive trust, two elements are required:

  • A common intention between the parties that they would share in the equitable title;
  • That one party acted to their detriment in reliance on this common intention.

There are two ways in which a common intention can arise:

Express common intention

The parties may have expressly agreed to share the property or had discussions that make clear this was their intention: Lloyds Bank v Rosset [1991] 1 AC 107. There must be positive discussions, however: it is not enough that the parties had unspoken expectations – James v Thomas [2007] EWCA Civ 1212. It is not necessary for the parties to have agreed shares: Drake v Whipp [1996] 1 FLR 826.

Implied common intention

The courts will infer common intention if the non-legal owner contributed to the purchase price, other than as a gift or loan: Lloyds Bank v Rosset [1991] 1 AC 107. This can be somewhat indirect, such as transferring a discount: Oxley v Hiscock [2004] EWCA Civ 546. However, completely indirect contributions, such as to household expenses, are not enough (Burns v Burns [1984] Ch 317) unless designed to free up one party to pay the mortgage (Le Foe v Le Foe [2001] 2 FLR 970). Non-financial contributions do not count.

Excuse cases

The Lords in Lloyds noted that the court may find an express agreement where the parties would have agreed to the share the property but one party gives a false excuse as to why the other cannot be on the legal title. Other cases have taken the same approach: Eves v Eves [1975] 1 WLR 1338; Rowe v Prance [1999] All ER D 496.

Detriment can take any form.

  • In implied common intention cases, the contribution to the purchase price is enough to establish the detriment as well.
  • In express cases, example detriments include home improvements and substantial labour (Eves v Eves [1975] 1 WLR 1338) or contributions to household expenses or the mortgage (Grant v Edwards [1986] Ch 638).

There must be a causal link between the intention and the detriment. The claimant must at least partially be motivated by the belief they are entitled to property when they incur the detriment: Wayling v Jones (1995) 69 P & CR 170.

Quantifying the Trust

The starting point for determining a person’s entitlement to the equitable title under a constructive trust is the legal title: equity mirrors the law. So, where property is transferred to two people under a joint tenancy at law, it is presumed that there is a joint tenancy in equity: Stack v Dowden [2007] UKHL 432. Problems arise when one party to a legal joint tenancy argues they are entitled to more, or where there is only one legal owner.

Joint Legal Ownership Cases

Departure from the presumption of equitable joint tenancy should be rare and requires unusual facts: Stack v Dowden [2007] UKHL 432. A strong factor is that the parties kept their financial affairs separate instead of pooling their resources: Fowler v Barron [2007] 2 AC 432. Other factors include any express discussions; what each party contributed to financing the property and its outgoings; and the purpose for which the property was acquired.

Sole Legal Ownership Cases

When only one person owns the legal title, the courts should allocate shares in the equitable title according to what they believe the parties intended: Stack v Dowden [2007] UKHL 432. This is likely to be difficult, as parties rarely discuss such things explicitly. The same factors relevant to departing from the presumption of joint tenancy are relevant to determining shares where there is only one legal owner.

In either case, it is possible for the parties’ common intentions to change across the course of the relationship. If so, their shares will change: Jones v Kernott [2012] AC 776.

Rochefoucauld v Boustead Trusts

These trusts arise from the maxim that equity will not allow a statute to be used as an instrument of fraud. They are named after the case establishing them: Rochefoucauld v Boustead [1897] 1 Ch 196. There is some controversy over whether they are best classed as express, resulting or constructive trusts.

A constructive trust is imposed in two situations:

Where a S transfers property to T on trust with S as the intended beneficiary, but the requirements for an express trust are not established (typically the formalities requirements): Bannister v Bannister [1948] 2 All ER 133.

Where S transfers property to T with express provision that the transfer is subject to B’s property or personal rights, or on an express trust for B which fails: Archibald v Alexander [2020] EWHC 1621.

The Rochefoucauld v Boustead trust prevents the intended trustee from reneging on the agreement and keeping the property for themselves. It arises because it is unconscionable for the intended trustee to go back on their word.

In a three party case, it is not clear in whose favour the trust arises. Is S the beneficiary, or B? This may turn on what kind of trust the doctrine creates, which has never been confirmed by the courts:

  • If this doctrine creates an express trust, the logical beneficiary is B. This is because B is the intended beneficiary.
  • If it creates a resulting trust, then the logical beneficiary is S. This is because T is unjustly enriched at S’s expense, and a resulting trust aims to reverse this.
  • If the trust is constructive, there are arguments for either S or B. If the goal is to enforce the promise, B should be the beneficiary. On the other hand, equity does not assist a volunteer, and B is a volunteer.

Pallant v Morgan Trusts

The Pallant v Morgan trust is also based on a transferee reneging on an agreement, but unlike the Rochefoucauld v Boustead trust more is required. It has been described as a special type of common intention constructive trust: Crossco No 4 Unlimited v Jolan Limited [2011] EWCA Civ 1619.

To establish this trust, the claimant must show: Banner Homes Group plc v Luff Developments [2000] EWCA Civ 3016

  1. The parties had an arrangement that arose before either of them acquired the property (though one case suggested it can apply to an agreement entered into after acquisition: Farrar v Miller [2018] EWCA Civ 172). This arrangement does not need to be contractually enforceable, but the parties should intend it to be immediately binding (see Generator Developments Ltd v Lidl UK GmbH [2018] EWCA Civ 396).
  2. The arrangement envisaged that one of the parties (the acquiring party) would take steps to acquire property, and when they succeeded the other party (the non-acquiring party) would get some interest in that property.
  3. In reliance on the arrangement, the non-acquiring party does or fails to do something which gives the acquiring party a benefit in acquiring the property, or disadvantages the non-acquiring party’s ability to get the property themselves.
  4. The acquiring party fails to tell the other party before acquisition that he no longer intends to honour the agreement.
  5. The circumstances make it unconscionable for the acquiring party to go back on the agreement.

If these requirements are met, the acquiring party will hold the property on trust for the non-acquiring party.